Video: Small Business in a Global Market

As the world moves closer to a global economy, more small businesses will look to expand into international markets. In this lesson, you'll learn about some of the advantages and disadvantages that small businesses face in a global market.

As the world moves closer to a global economy, more small businesses will look to expand into international markets. In this lesson, you'll learn about some of the advantages and disadvantages that small businesses face in a global market.

The Global Economy and Small Business

Meet Nicole. She started a small craft company about four years ago, and a significant number of people from overseas have shown an interest in her products based on her Internet traffic. She's thinking about taking the plunge into the global economy but is unsure that her small business can handle the rough seas of the global market. In a global market, Nicole will be seeking customers from all over the world and will be competing against businesses from all over the world.

The rewards for Nicole can be high, as her potential customer base rises from roughly 300 million to around 7 billion. Success is no way guaranteed, though. Nicole will face some significant disadvantages as a small business owner entering the global marketplace. However, a small business does have some advantages in its favor as well.

Small Business Advantages

If you think about a business as a ship on an ocean and the ocean as the global market, you can get a good picture of the advantages and disadvantages that Nicole's small business will have navigating the waters of the global economy. A small ship has a great deal of flexibility and can make quick course corrections, while it takes a lot of time and effort to move a large ship. Small businesses are better able to manage change and adapt to the dynamic global marketplace, just like a small ship can quickly make course corrections. Large businesses, on the other hand, have made huge investments in their current strategy and often face organizational resistance to change. Also, like most small businesses, Nicole doesn't have to answer to shareholders.

Small businesses can leverage technology to enable it to accomplish many of the same things as a bigger business. For example, the Internet has made it possible to market and reach people all over the world where it once took millions in marketing dollars. Nicole and small businesses like hers can also take advantage of outsourcing, which is contracting with another business to perform certain work. For example, Nicole may contract out the mass production of her products to a Chinese manufacturing company. This allows Nicole to minimize capital investment while being able to do what bigger businesses can do.

Nicole can offer great customer service more easily than a large business. Since Nicole is small, she can be focused on fewer products and meeting the needs of her customers. She can also adapt more quickly. Bigger businesses, on the other hand, often have to deal with rigid organizational structures where coordination is difficult and slow. This means addressing customer concerns and adapting to changing customer preferences is much more difficult.

Small Business Disadvantages

Big businesses do have some distinct advantages over Nicole and her small business. Size can be both an advantage and a disadvantage. While big businesses may be slow ships on the ocean, they are also difficult to knock over. Big businesses have access to resources that are not often available to small businesses. It's much easier for a large business to obtain financing and get access to venture capital from investors.

Information is power and gives a competitive edge. Big businesses will usually have an information advantage over small businesses. Large corporations have funds to invest in targeted market research to determine the viability of entering a new market. They have the resources needed to study the cultural, economic, political and legal barriers to entering a foreign market. For example, tastes and preferences vary widely across the world, and just because your product or service is in demand in your domestic market doesn't mean it will be elsewhere. Information gathered from detailed market research will help you determine if it will be or not.

Nicole and other small business owners may not have the resources available to obtain the same quality information to make the best business decisions. Technology can level the playing field substantially for Nicole but not completely.

Another advantage that big business has over smaller business is also related to their size and resources. If Nicole makes a mistake, it may cost her dearly because she has limited resources that she can invest in her global operations. On the other hand, a larger business can absorb larger losses and therefore take on more risk.

Lesson Summary

Let's review what we've learned. The global market consists of people and businesses buying and selling goods and services on a global scale. Small businesses have both advantages and disadvantages when attempting to penetrate the global marketplace. Small businesses have the flexibility to quickly adapt to the dynamic environment of the global economy. They can also leverage technology and utilize outsourcing firms that permit small businesses to engage in the same activities of larger companies without the capital investment.

Small businesses are often able to provide focused customer service and cater quicker to the changing preferences of customers. On the other hand, small businesses don't usually have the level of resources and access to capital that allows for acquisition of the best information and a higher tolerance for risk.

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